Beihua Sheng v. Starkey Laboratories ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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Nos. 96-1734/1829
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Beihua Sheng, *
*
Appellant/Cross-Appellee, *
* Appeal from the United States
District
v. * Court for the District of Minnesota.
*
Starkey Laboratories, Inc., *
*
Appellee/Cross-Appellant. *
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Submitted: April 17, 1997
Filed: June 27, 1997
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Before BOWMAN, BEAM, and MURPHY, Circuit Judges.
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BEAM, Circuit Judge.
The parties to this lawsuit attended a settlement conference without
knowing that the district court had handed down a summary judgment
decision. This appeal addresses what effect, if any, should be given to
the agreement they reached before discovering the court's action. We hold
that a contract was formed and was not based on mutual mistake.
I. BACKGROUND
Beihua Sheng sued her former employer, Starkey Laboratories, Inc.
(Starkey) alleging violations of Title VII. Starkey moved for summary
judgment and, after a hearing, the motion was submitted to the district
court. While the request was pending, the district court ordered the
parties' attendance at a mediated settlement conference, scheduled for
Monday, December 20, 1993. On Friday, December 17, the district court
signed an order granting Starkey's motion for summary judgment. Although
copies of the order were mailed to both counsel, the court's order was not
immediately entered in the official docket and the clerk of court did not
enter judgment. See Fed. R. Civ. P. 58 & 79. Monday morning, not yet
aware of the district court's decision, the parties met in the chambers of
a United States magistrate judge. At that conference, the parties agreed
that Sheng would dismiss all of her claims against Starkey in exchange for
Starkey's payment of $73,500. At the conclusion of the meeting the
attorneys shook hands and began discussing the appropriate tax treatment
for the payment.
After the conference, the magistrate judge informed the district
court of the agreement. The district court then rescinded its summary
judgment order sua sponte, directing the clerk of court to enter neither
the order nor judgment in the case docket. That afternoon, counsel for
both parties received copies of the December 17 order granting summary
judgment and the December 20 order vacating the first order. The next day,
the district court dismissed the action on the ground that it had been
settled.
Starkey filed a Rule 60(b) motion seeking to vacate the court's
orders rescinding the summary judgment and dismissing the case. Starkey
argues that there was no settlement because the parties did not agree on
all material terms of the contract. Alternatively, Starkey maintains that
the agreement is unenforceable because it was based on mutual mistake. The
district court denied Starkey's motion.
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Starkey appealed that determination to this court. In Sheng v.
Starkey Laboratories, Inc., 53 F.3d 192, 195 (8th Cir. 1995), we held that
the district court had erred by failing to hold an evidentiary hearing
before concluding that agreement existed on all material terms.
Accordingly, we remanded and expressly declined to reach Starkey's mutual
mistake argument.
Back in district court, the case was assigned to another judge, and
the required evidentiary hearing was held. The court found that the
parties had reached agreement on all essential terms, but held the contract
was unenforceable because it was based on both parties' mistaken assumption
that summary judgment had not been granted. Accordingly, the district
court rescinded the dismissal order and reinstated the summary judgment
order in Starkey's favor. Sheng appeals.
II. DISCUSSION
This is essentially an appeal of a Rule 60(b) decision. Rule 60(b)
allows a district court to rescind a final judgment for a variety of
reasons, including mistake. See Fed. R. Civ. P. 60(b)(1)-(6). We review
the grant or denial of Rule 60(b) relief for an abuse of discretion. MIF
Realty L.P. v. Rochester Assoc., 92 F.3d 752, 755 (8th Cir. 1996).
However, that discretion is limited: Rule 60(b) "does not allow district
courts to indulge a party's discontent over the effects of its bargain."
Andrulonis v. United States, 26 F.3d 1224, 1235 (2d Cir. 1994) (quotation
omitted). Thus, if the parties had entered a binding settlement, the
district court abused its discretion in granting Starkey's 60(b) motion.
We therefore turn to the existence and enforceability of the agreement,
which is governed by basic contract principles. MIF Realty, 92 F.3d at
756.1
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Courts disagree on the body of law governing Title VII settlements. Compare
Snider v. Circle K Corp., 923 F.2d 1404, 1407 (10th Cir. 1991) (applying federal
common law to Title VII settlement agreement) with Morgan v. South Bend
Community Sch. Corp., 797 F.2d 471, 478 (7th Cir. 1986) (applying state law to Title
VII settlement agreement). Both the parties and the district court have assumed that
Minnesota law controls, and since it makes no practical difference in this case, we will
apply Minnesota law. We leave the larger choice of law question for another day. See
Bowden v. United States, 106 F.3d 433, 439 (D.C. Cir. 1997) (declining to determine
which law controls Title VII settlement agreements when both sources of law result in
same outcome).
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A. Existence of Contract
An enforceable settlement requires the parties to reach agreement on
the essential terms of the deal. Ryan v. Ryan, 193 N.W.2d 295, 297 (Minn.
1971). Settlement agreements that do not expressly resolve ancillary
issues can, nevertheless, be enforceable. Triple B & G, Inc. v. City of
Fairmont, 494 N.W.2d 49 (Minn. Ct. App. 1992) (binding settlement existed
when parties had agreed on payment of damages, but failed to resolve
property owners' demand for additional drainage). The fact that the
parties left some details for counsel to work out during later negotiations
cannot be used to abrogate an otherwise valid agreement. Worthy v.
McKesson Corp., 756 F.2d 1370, 1373 (8th Cir. 1985) (per curiam).
Here, the district court concluded that the parties had an agreement
on all material issues. The court specifically found that the deal hinged
neither on the tax treatment of the payment, nor on other particulars, such
as the wording of clauses regarding confidentiality, disclaimers and the
release of liability. We will not set aside a district court's findings
of fact unless they are clearly erroneous. Fed. R. Civ. P. 52(a). We
perceive no such error, and therefore affirm the district court's legal
conclusion that a contract did exist between these parties.
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B. Enforceability of Contract
Starkey argues that even if the parties formed a contract, the
agreement was based on a mutual mistake. A mistake is a belief that is not
in accord with the facts. Restatement (Second) of Contracts § 151 (1981).
"Mutual mistake" consists of a clear showing that both contracting parties
misunderstood the fundamental subject matter or terms of the contract.
Dubbe v. Lano Equip., Inc., 362 N.W.2d 353, 356 (Minn. Ct. App. 1985).
The district court first held that both parties assumed that
Starkey's summary judgment motion was still pending, and then concluded
that this misconception rendered the contract voidable as mutual mistake.
The intent of contracting parties is an issue of fact, reviewed only for
clear error. City of Savage v. Formanek, 459 N.W.2d 173, 175 (Minn. App.
1990). However, the effect of a mistaken belief is a legal conclusion,
reviewed de novo on appeal. Id.
As an initial matter, we are not convinced that the parties'
erroneous assumption regarding the disposition of the summary judgment
motion would warrant recision. Before a misconception will render a
contract voidable, it must be more then an error about the monetary value
of the consideration; it must go to the very nature of the deal. Gartner
v. Eikill, 319 N.W.2d 397, 399 (Minn. 1982). In this case, while entry of
summary judgment may have affected how much value Starkey was willing to
give in exchange for Sheng's release, both parties would have had reason
to bargain had they known of the ruling. Litigants who win summary
judgment routinely settle with their opponents to avoid the costs of an
appeal, to assure confidentiality, or for a wide range of other reasons.
E.g. U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18
(1994) (addressing motion for vacatur after post-judgment settlement).
Even if misapprehension about the pendency of Starkey's motion was a
fundamental mistake, however, we hold that Starkey assumed the risk of that
error. A
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party may not avoid a contract on the grounds of mutual mistake when it
assumed the risk of that mistake. Winter v. Skoglund, 404 N.W.2d 786, 793
(Minn. 1987) (citing Restatement (Second) of Contracts § 152 (1981)). The
Restatement instructs courts to examine "the purposes of the parties" and
"its own general knowledge of human behavior in bargain transactions" to
allocate risk in these situations. Id. at § 154 cmt. d. Here, Starkey
knew it had a dispositive motion pending, and yet chose the certainty of
settlement rather than the gamble of a ruling on its motion. "Practically
every settlement . . . involves the element of chance as to future
consequences and developments. There are usually unknown and unknowable
conditions . . . that may affect the ultimate recovery or failure of
recovery. Mutual ignorance of their existence cannot constitute 'mutual
mistake.'" Anderson v. Ciba- Geigy Corp., 490 F.2d 438, 442 (8th Cir. 1974)
(quotation omitted). Consequently, Starkey cannot avoid the deal it struck
with Sheng.
III. CONCLUSION
The decision of the district court is affirmed in part and reversed
in part. The case is remanded to the district court for entry of judgment
dismissing the action based on the settlement agreement.
A true copy.
ATTEST:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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